How to use market sentiment indicator while trading or investing?

Market Sentiments Indicators are use to understand market behaviors during the market hours, post market hours, for short term, to mid term and even long term. However mostly reliability of a sentiment indicator is to tell what is happening in the market from a time horizon perspective. Let’s understand this with couple of example!

Example 1: Intraday Sentiment Indicator

In a intraday sentiment indicator, typically used by day traders can build their view for couple of hours at the max! Why because with change in dynamics of the market, sentiments would also change that will get reflected in the Sentiment Decoder or any other sentiment indicator. If a stock is very very volatile then intraday sentiment indicator will always give mixed signal! Hence, in that scenario mostly algorithms require further factors to be taken into consideration to bring stability in building the intraday view that would be valid for atleast 1Hr to 2Hrs.

Example 2: Monthly Sentiment Indicator

Monthly Sentiment Indicator are used by Swing traders, momentum traders who hold their position across days. In that scenario typically investor / trader want some level of validity of the sentiments. Typically monthly sentiment indicator would be valid across few days. Hence a monthly sentiment indicator required to be monitored in every 2 to 3 days, just to know if sentiments of the market still holds good or has changed!

Using market sentiment indicators while trading involves integrating sentiment analysis into your overall trading strategy. Hence you can hold that strategy till the view is valid. Once sentiment changes, there are possibilities for sentiment to come back in your favor as it was, like positive sentiment turned to neutral and then came back to positive. Hence it requires some practice to understand and use sentiment indicator.

Remember that market sentiment is just one piece of the puzzle, and it should be used in conjunction with other analyses. No single indicator guarantees success, so a well-rounded and disciplined approach to trading is essential. Additionally, continually refine your strategy based on your own experiences and market conditions.

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